K9 funds US deal with help from NZECO and BNZ
Page updated 13 Aug 2010
Dog food producer and exporter K9 Natural Foods has secured trade finance to deliver on a substantial distribution agreement in the United States, with assistance from the New Zealand Export Credit Office (NZECO) and the BNZ.
K9 founders Geoff Bowers and Bruce Mayhew have had a busy ride since launching their firm in 2006. They’ve secured distributorships throughout Asia, raised capital and won an emerging exporter award - all off the back of their unique New Zealand-made, natural, raw dog food product.
K9 Natural Foods chief executive Calvin Smith said: “We targeted the United States as a key market and were delighted to get assistance from the NZECO and BNZ.”
The buyer, a profitable NASDAQ listed company, demanded credit terms. K9 was left with the predicament of how to fund their short term working capital requirements as well as mitigate the risk of non payment.
“We were faced with three options; accept the US terms and go through another round of time consuming equity capital-raising, walk away from the order, or preferably, obtain trade credit insurance and use it to access trade finance from a bank,” Mr Smith said.
K9 Natural Foods was unsuccessful in securing private trade credit insurance so turned to the Treasury based, NZECO. The NZECO assessed the credit risk and issued a short-term trade credit insurance policy that underwrites 80% of the credit offered to the US buyer.
K9 subsequently negotiated to have the policy assigned to the BNZ so that it could unlock up to $1.0m of finance for K9’s working capital requirements.
“The NZECO has been incredibly easy to deal with, and their support was critical in enabling us to get additional trade finance from the BNZ,” Mr Smith said.
“We are very happy that our relationship with the NZECO has enabled us to assist K9 Natural Foods to funds its growth requirements,” said Craig Wilson, BNZ Partner – International Trade.
NZECO Manager Carmen Moana said that K9’s situation is typical of smaller exporters that want to use trade credit insurance to mitigate repayment risk and as a tool to access finance.
“Smaller exporters may be unable to obtain credit insurance from private providers because they may only have one buyer on credit terms, or they may not have yet reached a suitable size. We’re pleased that we can fill this market gap and underwrite the deal K9 has made with its US buyer,” Ms Moana said.
K9’s Calvin Smith says: “We are targeting sales of $5m this year and 300% per annum growth in the next two years which will make us a significant player in the raw, natural dog food market.”
“Offering credit is a great sales tool. Our US customer expected to receive terms and we always charge for the credit, whereas our German distributor declined terms and were happy to pay on a bill of lading. We will continue to offer terms if we can obtain trade credit insurance reflecting that this is what some players demand or appreciate.”